What Matters: December 2007
Netting Net Neutrality—New Internet Regulation Threatens U.S. Productivity
By Dan Hesse SM '89
(First published in Chief Executive magazine, September 2007)
Photo: ©iStockphoto.com/Kiyoshi Takahase.
America's future economic success rests on the broadband investments of today. Economists project universal broadband deployment could add 1.2 million jobs and $500 billion to the U.S. economy. North American telecommunications companies will invest an estimated $70 billion in 2007 alone to build access and infrastructure. Despite our efforts, however, the U.S. lags the world in broadband access, ranking behind 14 other nations in per capita broadband subscribers.
Given the benefits of broadband deployment, it would seem logical that U.S. policy would support universal access and development of the high-speed technology so crucial to economic growth and American competitiveness. According to the June 25 BusinessWeek cover story, "A dollar spent on telecom infrastructure produces an outsize impact on the U.S. economy as a whole...stimulating economic growth and productivity, more so than money spent on roads, electricity, or even education."
However, broadband investments are being threatened by so-called net neutrality, which in reality is net regulation. The phrase net neutrality was coined by large, Web-based companies in an attempt to impose government regulations on communications companies based on their claim that these network owners may one day selectively block or slow access to Web content. In a highly competitive market, network owners already have ample incentive to provide customers with full and free access to content.
The Internet has seen exponential growth. For instance, YouTube, just two years old, is consuming as much bandwidth on its own as the entire Internet did in the year 2000.
The Internet has grown in part because of its unusual position of being unregulated in the otherwise highly regulated telecom environment. The Internet market is working, and regulating it becomes a solution in search of a problem. If Internet discrimination does occur, the Federal Communications Commission, which has already barred the practices that net neutrality proponents most often cite, has the authority to handle it. Before we embrace any regulation of the Internet, there should be undisputed evidence of a market failure and proof that such regulatory benefits will outweigh the costs.
Though attempts are being made to position net neutrality as pro-consumer, in reality it is very anti-consumer. With net neutrality, Web-based companies would avoid compensating network owners for use of their facilities, leaving consumers and network owners to pay those costs. This would force the majority of consumers to pay for the high costs driven by a minority of Internet users, which would in turn undercut investment in networks and discourage the deployment of broadband facilities. A Rensselaer Polytechnic Institute study found that this net-regulation-induced inefficiency would require a network's peak capacity to be doubled to carry the same amount of Internet traffic.
Thus far, our government's hands-off policy has allowed the Internet to flourish. New government regulations risk spoiling that record of success and would represent the first government regulation of the Internet.
Too much is at stake to risk putting the brakes on Internet infrastructure investment. In an unprecedented development, 101 Internet infrastructure technology providers, including Cisco, Alcatel-Lucent, Nortel, Motorola, and Corning, cosigned a letter to members of Congress last year urging that no new net regulation mandate be enacted. They realize that the resulting reduced investments in America's broadband facilities would have a direct and negative impact on their companies.
This is a critical time for continued significant investment in broadband networks in this country. Clearly, creating new regulation that discourages this investment will have material negative impacts on U.S. global competitiveness and productivity.
About the Author
Dan Hesse is the chairman and CEO of Embarq Corporation, which provides voice, data, wireless, and entertainment services in 18 states. He joined Sprint in June 2005 to lead the effort to create Embarq, which separated from Sprint Nextel in May 2006. Prior to this, he spent 23 years at AT&T, and from 1997 to 2000 was president and CEO of AT&T Wireless Services, at the time the United States' largest wireless operator. From 2000 to 2004, he served as chairman, president, and CEO of Terabeam Corporation, a wireless telecommunications service provider and technology company.
Hesse received an SM degree from MIT, an MBA with distinction from Cornell University, and a BA with honors from the University of Notre Dame. He was awarded the Brooks Thesis Prize for writing the outstanding master's thesis from all master's programs at MIT's Sloan School of Management. He serves on the boards of directors of the Nokia and VF corporations, the world's largest mobile device and apparel makers, respectively. He also serves on the National Board of Governors of the Boys and Girls Clubs of America.
What Matters is a guest opinion column written by a different MIT alumnus or alumna. The views expressed are entirely those of the author and do not necessarily represent the views of the Alumni Association or MIT. Interested in writing a column? Email whatmatters@mit.edu.
